TEXT - Fitch rates PennantPark Investment Corp snr unsecured notes
Jan 17 - Fitch Ratings rates PennantPark Investment Corp's (Pennant) $67.5 million senior unsecured retail notes 'BBB-'. The unsecured retail notes, which mature on Feb. 1, 2025, have a coupon of 6.25% and may be redeemed in whole or in part at the company's option on or after Feb. 1, 2016. The company has granted the underwriters an option to purchase up to an additional $10.125 million of notes to cover over-allotments, if any. Fitch does not believe there will be a material impact on Pennant's leverage ratio as a result of the potential issuance, as part of the proceeds will be used to repay borrowings on the secured credit facility. Leverage, as measured by debt to equity, was 0.44x at Sept. 30, 2012. Post-issuance, unsecured debt will account for approximately 26.3% of Pennant's total borrowings assuming the over-allotment option is exercised and the proceeds from the issuance are used to repay borrowings on the secured credit facility. In Fitch's view, the limited amount of unsecured debt in Pennant's capital structure creates increased risks for the company's unsecured creditors, as the secured debtholders have a blanket lien on all the assets not included in the SBA subsidiary. Nevertheless, Fitch expects to equalize the unsecured rating with the Issuer Default Ratings (IDRs) in light of Pennant's relatively low leverage and solid asset coverage for all classes of debt. Should leverage increase above management's targeted range or the portfolio mix shift more heavily toward subordinated debt positions and/or equity, the unsecured rating could be notched down from the IDR, reflecting lower recovery prospects. RATING DRIVERS AND SENSITIVITIES Pennant's current ratings and Outlook reflect its low leverage, consistent operating performance, moderate investment concentrations, strong asset quality, solid liquidity and dividend coverage, and experienced management team. Rating constraints reflect the company's relatively short operating history, limited funding flexibility, capital markets impact on leverage, dependence on the capital markets to fund portfolio growth, and inability to retain capital due to dividend requirements. Negative rating action could result from a significant increase in portfolio equity exposure, material deterioration in operating performance or asset quality, excessive realized portfolio losses, weaker cash earnings coverage of dividends, and/or inability to access the capital markets. The unsecured debt rating could be notched down from the IDR if leverage were to increase above management's targeted range or the portfolio mix shift more heavily toward subordinated debt positions and/or equity Positive rating momentum is believed to be limited over the near term, given Pennant's limited funding flexibility, relatively short-operating history, its portfolio concentrations, and volatility in capital markets. Headquartered in New York City, Pennant is an externally managed BDC, founded in January 2007. The company completed an initial public offering on April 24, 2007, netting $294.1 million of proceeds. Pennant invests primarily in middle market companies, targeting companies with annual revenues between $50 million and $1 billion range. Pennant had total assets of $1 billion at Sept. 30, 2012, and its stock trades on the NASDAQ under the ticker PNNT. Fitch expects to assign the following rating: PennantPark Investment Corporation --Senior Unsecured Notes 'BBB-'. Existing Ratings on Pennant are as follows: PennantPark Investment Corporation --Long-term IDR 'BBB-'; --Secured debt 'BBB-'.